What is a ‘fintech’ company?

(This is an English translation of the originally published post in Spanish, which can be found here.)

El Financiero, Costa Rica
08/19/2017 12:00 am By Mario Hernández, CEO, Impesa

What is a ‘fintech’ company?

What is a FinTech company? It is a company that works with technology in the financial sector. And in general, the technology developed causes creates innovation or disruption in the industry.

The boom of FinTech is said to have begun in 2010, according to several financial analysts. However, after a more detailed analysis, we see that these companies exist from many years ago.


E*Trade, for example, came to revolutionize the buying and selling of financial instruments (bonds, stocks and options) in 1996. At that time, the industry was dominated by large stock exchanges, such as Schwab, which offer advice and analysis about buying and selling financial instruments. At that time, a bond purchase transaction could cost more than $100. E*Trade, with its technological platform came to “democratize” the industry with transactions that it charged just $9.99 for.

In 1998, PayPal developed its payment technology. At the time great brands like Visa, Mastercard and American Express did not pay much attention, and the rest is history. Acceptance of PayPal and the disruption it caused in the market laid the foundation for small businesses to start generating their financial products.

That is how companies like Lending Club and Lending Tree were born, which literally have come to eliminate financial intermediation.

These platforms cause a major change in the way traditional banking carries out its role of financial intermediation.



The need has also begun to generate a lot of innovative products in African and Asian countries. Supported by technology and telephone companies, entrepreneurs have managed to bankize a large number of the population by putting on their mobile devices the well-known mobile wallets that keep the money. Today companies like m-Pesa are cases of success and study at a global level that operate in countries like Kenya and Tanzania.

The FinTechs are revolutionizing the financial world. A study by the Inter-American Development Bank (IDB) and Finnovista shows a huge growth in Latin America of these type of companies in almost all sectors of the financial industry: payments, loans, accounts, transfers, asset management, etc.

Recently I was invited to participate as a panelist in the Latin American Congress of Digital Banking, Innovation and Technology. It was an interesting event since a lot of the attendees were bankers, who were there to understand how their banks can work with FinTech companies.

Banks can and should capitalize on the strengths of FinTech companies for their benefit. BBVA, for example, published its API library and in a few months already had over 1,500 programmers developing programs on its platform. This gives them a huge advantage as they will soon have a wealth of apps and other financial tools around their systems.

The FinTechs, unlike banks, are not subject to a lot of regulations which inevitably makes them more agile and quick.

Any FinTech entrepreneur you speak to mentions two key aspects to the success of these companies: “time to market” and scalability. However, we must not lose sight that there are discussions about regulation of these companies, especially in relation to anti-money laundering issues. For the moment, we will continue to see the growth of this industry and the banks that know how to take advantage of this current that is revolutionizing the financial industry.

I will address topics related to innovation, blockchain, regulation and products of FinTech companies in my following articles.